Much has been written about the impact of newfound supplies
from the US shale boom on the nations ethylene industry,
culminating in plans for several new ethane crackers. However,
a similar trend for olefins producers is also occurring on the
propylene side, using shale-derived propane as feedstock.

As of today, seven projects have been proposed in the
field of propane dehydrogenation (PDH), which converts propane
into propylene and byproduct hydrogen. But, at the moment, only
one such plant is actually operating in the US. That one is the
PetroLogistics facility near Houston, which started operations
in 2010 and has a propylene production capacity of 1.45 billion
lb/year (658,000 tpy). The plant is one of the largest of its
kind in the world.

Flint Hills moves to acquire PetroLogistics

So does this trend have staying power? Flint Hills
Resources, a major US-based refining and petrochemicals producer and a part
of Koch Industries, is betting that it doesas evidenced
by their $2.1 billion agreement announced in early June to
acquire PetroLogistics.

PetroLogistics unique capabilities will help us
expand our existing chemical and refining business, Flint Hills
said in a statement. There are also pipeline and supply
synergies that will help us create additional value for our
customers. We will continue to serve the customers of the
business but will look for synergies with our existing business
in the future where it makes sense.

One such synergy could come with the existing Flint Hills
polypropylene (PP) business, which includes plants in Texas and
Michigan and could use the new propylene supply as a raw
material in its production process.

Propylene trading is another possibility

But another plausible scenario comes in the form of
propylene trading. The PetroLogistics plant, located on the
Houston Ship Channel (Fig. 1), has strong
pipeline interconnections between the plant site and storage facilities in nearby Mont Belvieu.
From there, the propylene could be transported almost anywhere
through existing infrastructure.

Fig. 1. The PetroLogistics
PDH plant near the Houston Ship Channel first started
commercial operations in 2010.

And with none of the other seven plants expected to launch
production until the second half of this decade, the US
propylene market is likely to be tight for the immediate
future. That gives Flint Hills, assuming the successful
completion of its planned PetroLogistics acquisition, a head
start on the market. While most of the PetroLogistics propylene
supply is presently under contract, the first major contract
ends in December of this year, giving Flint Hills plenty of
options and flexibility.

New hydrogen supply from PDH could benefit US refiners

Another byproduct of the PDH trend is a new source of
hydrogen for US refiners, who could then use it to help meet
stricter sulfur regulations. The nations recently-adopted
Tier 3 gasoline standards intend to reduce sulfur levels to 10
parts per million (ppm) from 30 ppm. To accomplish that drop,
refiners are expected to need an additional 100-to-200 million
cubic feet/day of hydrogen, according to Daniel Yankowski,
president of Praxairs global hydrogen business.

Already, PetroLogistics is providing Praxair with 93% of
hydrogen produced at its Houston plant. And both Praxair and
Air Products, two of the major hydrogen providers within the
US, are prepared with existing pipeline infrastructure to
transport hydrogen to facilities throughout the US Gulf
Coast.

Work remains to be done

The deal for PetroLogistics is not yet complete. Other
prospective buyers have until July 6 to file a competing offer,
and between that period, customary closing conditions and
regulatory approvals, Flint Hills says it does not expect to
complete the deal until late 2014.

But the agreed-to terms would make the acquisition the
largest in Flint Hills history, reflecting the confidence
that the company has in both the PetroLogistics plant and the
role of propane dehydrogenation going forward in the US petrochemical marketplace.

PetroLogistics built this facility from the ground up,
and it is a world-class operation, said Brad Razook, CEO
of Flint Hills Resources. Its capabilities are well
aligned with our existing chemical and refining business. We look forward
to welcoming PetroLogistics employees to Flint Hills Resources
as we work together to build on their success.
HP

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